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2013

ING Group

Annual Report

Simpler, stronger, sustainable

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ING Group Annual Report 2013 Simpler, stronger, sustainable

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... customer centricity > Sustainability of our business model solidified > Our funding position improved and our capital and liquidity positions remained strong > ING posted 2013 underlying net profit of EUR 3,255 million, up 22% from 2012 > Risk costs up in a weak economic year in many of the markets...

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... Boards ING share 4 6 8 9 10 2 Report of the Executive Board Financial and regulatory environment Strategy Capital management Risk management Information technology 12 16 21 23 25 Banking overview - Retail Banking - Commercial Banking Insurance overview - NN Group 27 32 41 46 50 3 Corporate...

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... "Corporate Deal of the Year Award (Europe)" and "Best Structured Commodity Finance Bank (Global)". Also NN Group received several awards, for example in Poland, it was the most customer friendly life insurance company in the Gazeta Bankowa 2013 contest. Investment Management in the Netherlands was...

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... base case for the insurance and investment management business, 2014 is set to be an important year for ING and all our stakeholders. Ralph Hamers Chief Executive Officer of ING Group March 2014 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company...

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... strategy for ING Bank to be presented in the first half of 2014 and a scheduled IPO for the insurance business, 2014 is set to be an important year for ING and all our stakeholders. OUR PROFILE ING is a global financial institution of Dutch origin, currently offering banking, investments, life...

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... several business segments: Netherlands Life, Netherlands Non-life, Insurance Europe, Japan Life, Investment Management, Other (Nationale-Nederlanden Bank, ING Reinsurance and Holding) and Japan Closed Block VA. 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts...

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... 2013. The results of ING U.S., Insurance/IM Asia, excl ING Life Japan, and Insurance Latin America have been transferred to "net result from discontinued operations". See note 37 in the Annual Accounts. Capital ratios and other data 2013 2012 2011 Debt/equity ratio (1) Core Tier 1 ratio NN Group...

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... - Employee engagement scores Insurance Donations to UNICEF (in EUR thousand) (4) 6,570 109 29 74% 67% 3,154 5,725 117 52 73% 70% 2,774 2 Report of the Executive Board (2) (3) (4) As a bank and asset manager, ING allocates assets to a wide range of companies, projects and funds. Increasingly...

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... hence profitability. For their part, shareholders expect a dividend which reflects ING Group's financial results and is relatively predictable. ING's policy is to pay dividends in relation to the long-term underlying development of cash earnings. Dividends will only be paid when the Executive Board...

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... The Netherlands Telephone: +31 20 576 6396 E-mail: [email protected] Main credit ratings of ING (1) Standard & Poor's Rating ING GROEP N.V. ING BANK N.V. FTSE 300 Banks FTSE 300 Life Insurance 3 Corporate governance REVIEWS OF ING'S SUSTAINABILITY PERFORMANCE ING Group's approach...

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... markets' shock absorbers are now far stronger than before, with more flexible exchange rate regimes, more abundant official reserves and less debt in foreign currency. ING GROUP FINANCIAL DEVELOPMENTS ING Group had a successful year in 2013, delivering an improved underlying result while making...

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... would apply from 2018, the EU agreed in December 2013 that they will take effect on 1 January 2016. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 13

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... universal banking model, combining retail and commercial banking activities. The universal banking model brings major benefits in terms of risk diversification, capital and liquidity management and consumer choice, while fulfilling the needs of long-term customer banking relationships. In June 2013...

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... to the Issuer and DNB is also entitled to require that the relevant entity submit a recovery plan. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 15

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... state aid and building both stronger and sustainable banking and insurance/ investment management businesses. ING Bank's strategic aim is to be a strong, predominantly European bank for its customers. ING Bank wants to be a leading domestic full-service bank in attractive, stable home markets...

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...2 Report of the Executive Board Threats â€¢ Ongoing uncertainty about regulatory changes. Lack of an international level playing field. Bank-speciï¬c â€¢ Possibly from new entrants from outside of the industry. 3 Corporate governance 4 Consolidated annual accounts ING's solid foundations, based...

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... Customer Golden Rules since 2009 and made them an integral part of our Product Approval and Review Process ("PARP"). Through this process, ING attempts to make sure that all newly developed and existing products and services meet the set requirements for doing business. 18 ING Group Annual Report...

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... a high response rate of 81%. Compared with 2012, the results show an increased confidence in the long-term future of the company and the 2 Report of the Executive Board 3 Corporate governance Two examples show how this translates into business practice: â€¢ In the first quarter of 2013, ING took...

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... a top employer in France, Poland, Belgium and Italy. A refined and sharpened Bank strategy for 2014 and onwards will be presented in the first half of 2014. INSURANCE/INVESTMENT MANAGEMENT In September 2013, NN Group presented an overview of its business, strategy, capital framework, executive team...

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... issued in 2009 and bank levies. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts ING Group capital structure in EUR billion 2013 2012 Equity Core Tier 1 securities Core debt Hybrids Total capital Group State repayment in EUR...

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Capital management continued During 2013, ING Group received dividends from ING Bank and NN Group which it used to reduce core debt. In the second quarter, NN Group paid a dividend to ING Group of EUR 775 million; this included the EUR 0.6 billion proceeds from the IPO of the US Insurance business,...

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... help corporate customers fund their international business plans. Our insurance business provides products and services in retirement services, insurance, investments and banking to help customers secure their financial future. THREE LINES OF DEFENCE The key objective of risk management at ING is...

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...Dutch State, but also allowed ING Bank to use capital to further reduce the Group's core debt. Further, in 2013 DNB performed an Asset Quality Review for commercial real estate primarily focusing on relevant income producing real estate portfolios. Provisions and Pillar I capital levels for ING Bank...

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.... ING Bank regretted the temporary loss of service and worked intensively to defend its infrastructure and to 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report...

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... the consolidation of data centres in the Netherlands and in Commercial Banking. INSURANCE Information technology plays a crucial role in supporting NN Group as a leading insurance and investment management organisation. In 2013, NN Group made significant progress in restructuring its operations in...

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... IFRS-EU equity was 9.0% in 2013, up from 7.0% in 2012. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Financial overview* in EUR million 2013 2012 Total underlying income Underlying operating expenses Underlying additions to loan loss provisions Underlying...

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... State in November. During the year ING took several more steps to unwind its support from the Dutch State. In 2013 ING Bank reduced the Dutch State guaranteed funding by EUR 3.6 billion to EUR 2.5 billion, mainly through a tender offer. The remaining bonds will mature 28 ING Group Annual Report...

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..., increasing the number of contactless ATMs. Using best practices from around the ING world, ING Turkey 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... a multi-product bank. In 2013 we enjoyed a number of key milestones and external recognition. ING-DiBa, for example, surpassed EUR 100 billion funds entrusted and ING Spain surpassed one million payments accounts. Customers voted ING Direct Australia as the Best Bank in Australia and ING-DiBa was...

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... bank with a strong international network focused on providing customers with consistently high-quality services. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual...

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.../income ratio Customer balances: net production funds entrusted (EUR billion) Customer balances: net production lending (EUR billion) Underlying risk costs in bp of average risk-weighted assets Risk-weighted assets (year-end, EUR billion, adjusted for divestments) Underlying return on equity based...

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... the year, with house prices declining at a less rapid rate and demand picking up. In the course of 2013, the economy began to show signs of improvement as the country emerged from 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts...

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... 375 ING Service Points. Retail NL's mortgage market share declined by 1.4%-point, mainly due to the transfer and sale of part of the WUB portfolio. The full-year net production in mortgages (excluding transfers and sales) was EUR -0.4 billion (2012: EUR 1.8 billion). The non-performing loans ratio...

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... Bank) manages its funding and distribution strategy in the Dutch market independently from ING Bank. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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...of Private Banking funds entrusted and assets under management in Retail Belgium was EUR 17.6 billion (+ 4.9% since 2012). The Bank's continuous efforts to make banking easy paid off. For the 7th year in a row, ING Belgium experienced a net year-on-year growth of its customer base. The net growth of...

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...(re-)affirm that they comply with local tax regulations following the European Savings Tax Directive. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 37

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...and increased expenses for the deposit guarantee scheme, in line with the growth of the business. The cost/income ratio improved to 51.1% from 56.1% in 2012. The additions to the provision for loan losses slightly declined in 2013 to EUR 82 million (or 37 basis points of average risk-weighted assets...

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...simple products and services that best meet their needs at fair pricing and focusing on digital channels. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... for making contactless payments by smartphone, called ING Pay; ING Australia's new mobile app won the 2013 "Mobile Award"; ING Vysya Bank released an app that increases its reach into remote cities and rural areas; and ING Italy's mobile app is now used by 50% of its customers within a year after...

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... the Executive Board 3 Corporate governance 4 Consolidated annual accounts Financial overview* in EUR million 2013 2012 Total underlying income Underlying operating expenses Underlying additions to loan loss provisions Underlying result before tax Underlying cost/income ratio Client balances: net...

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.... Transaction Services products, such as International Payments & Cash Management, Trade Banking and Working Capital Solutions are tailored, through integrated solutions and advice, to meet our clients' short- and long-term banking and liquidity requirements. Financial Markets, as the Bank's gateway...

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... to new regulations and to execute ING's balance sheet optimisation strategy, ING has been coordinating treasury activities across all business lines within the Bank. This has been made possible through significant asset transfers across countries to guarantee an optimal use of our internal funding...

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... a move to more hub-based booking and processing of Commercial Banking business. This will improve the overall flexibility of our Commercial Banking business model, while supporting further balance sheet optimisation. The establishment of two new Global Services & 44 ING Group Annual Report 2013

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...capabilities in Europe and elsewhere and, most important of all, we are delivering what clients want. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 45

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... Taxation/minority interest Net result New sales life insurance (APE) Total administrative expenses ongoing business Cost/income ratio ongoing business (adm. exp./ operating income) Investment Management AuM (end of period, in EUR billion) Combined ratio (Netherlands Non-life, year-to-date) NN Group...

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...** market 3 Corporate governance * Outside Europe and Japan, Investment Management has offices in New York, Atlanta, Singapore and Dubai. Top-four market positions in many European countries ** Corporate-Owned Life Insurance. 4 Consolidated annual accounts BUSINESS DEVELOPMENTS In 2013, ING...

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... quarter of 2013, as follows: â€¢ Netherlands Life â€¢ Netherlands Non-life â€¢ Insurance Europe â€¢ Japan Life â€¢ Investment Management â€¢ Other â€¢ Japan Closed Block VA AMERICAN DIVESTMENT In May, ING U.S. listed on the New York Stock Exchange and began operating as a publicly traded company...

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...providing multiaccess distribution, having efficient and effective operations and generating capital. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 49

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... 2013, compared with a loss of EUR 335 million in 2012, driven by an improvement in non-operating items and lower adverse impact from special items as well as the increase in operating result. BUSINESS DEVELOPMENTS Netherlands Life offers a range of group life and individual life insurance products...

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...easy-to-understand products. 2 Report of the Executive Board 3 Corporate governance NETHERLANDS NON-LIFE > The profitability of income protection products improves > Run rate expenses are decreasing due to product and process innovation > Customer service is improving Netherlands Non-life's aim is...

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... products and processes it lowered run rate expenses. In the property and casualty business, it downsized the product portfolio in line with the focus on retail, SMEs and the self-employed. PRODUCTS AND SERVICES Netherlands Non-life broadened its non-life insurance package for companies in 2013...

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... 2013. New products and value propositions were introduced. Its customer focus approach resulted in increasing NPS scores and several awards. 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report...

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... DEVELOPMENTS Investment Management offers a wide variety of actively managed investment products and advisory services to retail and institutional customers in all major asset classes and investment styles. In addition, it manages the assets of NN Group's businesses. 54 ING Group Annual Report...

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... customers and the remaining EUR 70 billion for the general account of NN Group's businesses. In 2013, Investment Management continued to simplify and streamline its operations, in line with the separate divestment of the Asian insurance and investment management businesses. During the year, ING...

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... service their customers. ING RE ING Re is NN Group's internal reinsurer located in the Netherlands. ING Re primarily offers reinsurance to NN Group's businesses. It manages its risks through ceding excess insurance risk to external reinsurers and hedging (a major part of) its market risks. ING...

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... 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information REPORT OF THE EXECUTIVE BOARD 7 Additional information The Corporate governance section starting on page 62 and the paragraphs of the Remuneration report "Remuneration policy for senior management" and "2013...

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... the year. Also in January, the Supervisory Board held its annual meeting on ING's strategy as well as the medium-term plan (MTP) 2013-2016 and related risks. The MTP addresses the plans and the financial and non-financial targets for the banking and the insurance businesses and for the Group as...

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... & Young in the March 2014 meeting. Directly following the Audit Committee meetings, the members of 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 59

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...General Meeting of Shareholders in May, Ralph Hamers became a member of the Executive Board, Management Board Banking and Management Board NN Group (formerly called ING Insurance Topholding N.V.) and Management Board ING Verzekeringen N.V. as per AGM of 13 May 2013 and CEO of ING Bank, NN Group, ING...

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...which are deemed to be incorporated by reference here. AMSTERDAM, 17 MARCH 2014 THE SUPERVISORY BOARD 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 61

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...shareholders' meeting of ING Group ("General Meeting"). The financial entitlements of the Securities are described in note 33 to the consolidated annual accounts. On 17 December 2013, ING Group announced that it had completed the agreement with the Dutch State on the unwinding of the Illiquid Assets...

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..., are independent within the meaning of the Corporate Governance Code. The definition of independence 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 63

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.... Under Dutch company law and the Corporate Governance Code, binding shareholder approval is only required for equity compensation plans (or changes thereto) for members of the executive board and supervisory board, and not for equity compensation plans for other groups of employees. members who...

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... of quarterly earnings releases are announced in advance on ING Group's corporate website (www.ing.com). 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... that are directly or indirectly involved in the production or publication of analysts' reports, with the exception of credit-rating agencies. ING Group presented at 6 industry conferences throughout the course of the year. In total, there were 104 Fixed income and 408 Equity meetings (including...

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... ING Group, all subject to a proposal made by the Executive Board upon approval by the Supervisory Board; 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... in corporate governance of large stock-listed companies and experience in the political and social environment. REMUNERATION AND SHARE OWNERSHIP Members of the Executive Board are permitted to hold shares and depositary receipts for shares in the share capital of ING Group for long-term investment...

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... as from the 2009 annual General Meeting. These resolutions related to the following matters: 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 69

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...retail and wholesale banking, insurance, gender balance, executive experience, experience in corporate governance and experience in the political and social environment. Annually, the Nomination Committee assesses the composition of the Supervisory Board. In the context of such assessment, ING Group...

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... directorships, paid positions and ancillary positions, held by members of the Supervisory Board. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 71

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..., male; appointed in 2007, term expires in 2015) Former managing director of F&C and country head for F&C Netherlands (asset management firm). Other business activities: chairman of the Supervisory Board of NSI N.V. (real estate fund) (listed company). Non-executive director of Brink Groep B.V. and...

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... Group's policy on external auditor independence is available on the website of ING Group (www.ing.com). 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... of ING Trust Office, the composition of the Board, the 2012 balance sheet and statement of income and expenses of ING Trust Office. MEETINGS WITH ING GROUP During the 2013 reporting year, the Board had five meetings with the chairmen of the Executive Board and the Supervisory Board of ING Group. In...

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... the net number of depositary receipts increased with 10,069,970. The increase came about as follows: add: conversion of shares into depositary receipts less: conversion of depositary receipts into shares 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent...

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... can be found on the website of ING Trust Office (www.ingtrustoffice.com). All members of the Board stated that they meet the conditions regarding independence as referred to in the Articles of Association and in the Dutch Corporate Governance Code. The annual remuneration for the chairman of the...

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... of ING Continuity Foundation. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts AMSTERDAM, 17 MARCH 2014 BOARD OF STICHTING CONTINUITEIT ING 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 77

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...assets, liabilities, financial position and profit or loss of ING Groep N.V. and the enterprises included in the consolidation taken as a whole; the ING Groep N.V. 2013 Annual Report gives a true and fair view of the position at the balance sheet date, the development and performance of the business...

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...) Hamers CEO, CHAIRMAN OF THE EXECUTIVE BOARD P.G. (Patrick) Flynn CFO, MEMBER OF THE EXECUTIVE BOARD 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 79

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... Oversight Board (United States), the consolidated balance sheet of ING Groep N.V. as of 31 December 2013, the consolidated profit and loss account, consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity for the year then...

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...Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information Financial performance indicators include: 1. Underlying net profit for ING Group 2. Reduce double leverage in ING Group 3. Reduce the loan-to-deposit ratio of ING...

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... benefits (e.g. the use of company cars, contributions to company savings plans and, if applicable, expatriate allowances) which apply to other comparable employees. Executive Board members may obtain banking and insurance services from ING Group subsidiaries in the ordinary course of their business...

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...of each deferred share will be based on ING Group's stock price at the vesting date. 5 Parent company annual accounts (2) (3) Ralph Hamers was appointed to the Executive Board on 13 May 2013. The 2013 pension costs for him reflect the partial year as an Executive Board member. Jan Hommen retired...

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... in lifecycle saving schemes or are related to long home/work distances and housing and amounted in 2013 to the following gross amounts: Other emoluments amounts in thousands of euros 2013 2012 Loans and advances to Executive Board members The table on the next page presents the loans and advances...

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...separation of ING's banking and insurance activities, the remuneration structures for senior management in ING's banking and insurance operations were determined separately in 2013 based on internal strategy and external regulatory developments. The remuneration policy for the Executive Board, which...

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... Board members may obtain banking and insurance services from ING Group subsidiaries in the ordinary course of their business and on terms that are customary in the sector. The table on the next page presents the loans and advances to Supervisory Board members outstanding on 31 December 2013, 2012...

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... Board. Stock options on ING Group N.V. shares held by members of the Supervisory Board Outstanding as at 31 December number of stock options Expired in 2013 2013 Outstanding as at 31 December Expired in 2012 2012 Outstanding as at 31 December Expired in 2011 (2) 2011 4 Consolidated annual accounts...

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...WORKS COUNCIL on 31 December 2013 N. (Norbert) Lucas, chairman, Germany R. (Rene) De Meij, secretary, Belgium J.P. (Jean Pierre) Lambert, chairman Bank, Belgium C.M. (Mihai) Ailincai, secretary Bank, Romania A. (Aad) Kant, chairman Insurance, the Netherlands..., UK. 88 ING Group Annual Report 2013

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... to the consolidated annual accounts Notes to the accounting policies 1 Accounting policies Notes to the consolidated balance sheet 2 Cash and balances with central banks 3 Amounts due from banks 4 Financial assets at fair value through profit and loss 5 Investments 6 Loans and advances to customers...

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...assets EQUITY 14 Shareholders' equity (parent) Non-voting equity securities Minority interests Total equity LIABILITIES Subordinated loans 15 Debt securities in issue 16 Other borrowed funds 17 Insurance and investment contracts 18 Amounts due to banks 19 Customer deposits and other funds on deposit...

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... the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 370 -42 17 345 839 -394 752 1,197 -180 995 815 3,439 4,270 5,868 Amounts for 2012 and 2011 have been restated to reflect the changes in accounting policies for defined benefit pension...

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... changes in accounting policies for defined benefit pension schemes as disclosed in the section 'Changes in accounting policies in 2013' on page 98. References relate to the notes starting on page 98. These form an integral part of the consolidated annual accounts. 92 ING Group Annual Report 2013

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...-for-sale investments and other -942 -7 -3,221 -22 1,100 -12 2 Report of the Executive Board Realised gains/losses transferred to the profit and loss account Changes in cash flow hedge reserve Transfer to insurance liabilities/DAC Share of other comprehensive income of associates Exchange rate...

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...customer deposits and other funds on deposit - trading liabilities - other financial liabilities at fair value through profit and loss - other liabilities Net cash flow from operating activities - associates - available-for-sale investments - real estate investments - property and equipment - assets...

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...the Executive Board References relate to the notes starting on page 98. These form an integral part of the consolidated annual accounts. 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... shares Balance as at 31 December 2011 Remeasurement of the net defined benefit asset/ liability 44 Unrealised revaluations property in own use Unrealised revaluations available-for-sale investments and other Realised gains/losses transferred to the profit and loss account Changes in cash flow...

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... of euros Share capital Share premium Total shareholders' equity Reserves (parent) Non-voting equity securities Minority interests Total equity Balance as at 1 January 2013 Remeasurement of the net defined benefit asset/ liability 44 Unrealised revaluations property in own use Unrealised...

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... ING Group amounts in millions of euros, unless stated otherwise NOTES TO THE ACCOUNTING POLICIES AUTHORISATION OF ANNUAL ACCOUNTS The consolidated annual accounts of ING Groep N.V. for the year ended 31 December 2013 were authorised for issue in accordance with a resolution of the Executive Board...

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...12 The change in accounting policy affects the balance sheet lines Other assets, Shareholders' equity (parent), Liabilities held for sale and Other liabilities. Reference is made to Note 13 'Other assets', Note 22 'Other liabilities', Note 44 'Pensions and other post-employment benefits and Note 45...

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..., ING Life Japan will be included with ING's European insurance and investment management businesses in the base case IPO of NN Group in 2014. As a result, ING Life Japan and the Japanese Closed Block VA guarantees reinsured to ING Re ('ING Japan') are no longer classified as held for sale and...

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... structured entities. There is no impact on Total equity, Net result and/or Other comprehensive income. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... include interest rates, mortality, morbidity, property and casualty claims, investment yields on equity and real estate, foreign currency exchange rates and reserve adequacy assumptions. The use of different assumptions about these factors could have a significant effect on insurance provisions and...

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... to internal review and approval. Most data used in these valuation techniques are validated on a daily basis. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report...

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... benefits Group companies operate various defined benefit retirement plans covering a significant number of ING's employees. The net defined benefit asset/liability recognised in the balance sheet in respect of the defined benefit pension plans is the fair value of the plan assets less the present...

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... sale, but is recognised as part of the result on disposal if and when a divestment transaction occurs. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

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... and other instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold, the corresponding exchange rate differences are recognised in the profit and loss account as part of the gain or loss on sale. 106 ING Group Annual Report 2013

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...securities and actively traded loans intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices, are classified as available-for-sale. 7 Additional information ING Group Annual Report 2013...

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... sheet classification Investments (available-for-sale and held-to-maturity); â€¢ Money market risk arises when ING Group places short term deposits with a counterparty in order to manage excess liquidity and among others relates to the balance sheet classifications Amounts due from banks and Loans...

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... balance sheet when the Group has a current legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company...

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... through profit and loss - Trading assets, as appropriate. The difference between the sale and repurchase price is treated as interest and amortised over the life of the agreement using the effective interest method. Impairments of loans and advances to customers (loan loss provisions) ING Group...

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... into account both the Group's financial interests for own risk and its role as investment manager. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 111

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Notes to the consolidated annual accounts of ING Group continued Real estate investments Real estate investments are recognised at fair value at the balance sheet date. Changes in the carrying amount resulting from revaluations are recognised in the profit and loss account. On disposal the ...

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.... Amounts arising from interests in the acquiree prior to the acquisition date that have previously 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 113

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... generally not exceed three years. Amortisation is included in Other operating expenses. Value of business acquired (VOBA) VOBA is an asset that reflects the present value of estimated net cash flows embedded in the insurance contracts of an acquired company, which existed at the time the company...

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... Benefits for Life on the Insurance US Closed Block VA book and certain guarantees embedded in insurance contracts in Japan. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group...

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..., it is determined, using a best estimate (50%) confidence level, that a shortfall exists, and there are no offsetting amounts within other business units in the same segment (Business Line), the shortfall is recognised immediately in the profit and loss account. 116 ING Group Annual Report 2013

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... of employment using an accounting methodology similar to that for defined benefit pension plans. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 117

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... is measured at each balance sheet date. Rights granted will remain valid until the expiry date, even if the share based payment scheme is discontinued. The rights are subject to certain conditions, including a pre-determined continuous period of service. 118 ING Group Annual Report 2013

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... to exchange rate differences and is accounted for separately as part of the reconciliation of the net cash flow and the balance sheet change in Cash and cash equivalents. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other...

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Notes to the consolidated annual accounts of ING Group continued NOTES TO THE CONSOLIDATED BALANCE SHEET ASSETS 2 CASH AND BALANCES WITH CENTRAL BANKS Cash and balances with central banks 2013 2012 Amounts held at central banks Cash and bank balances Short term deposits insurance operations 10,625...

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... 98,765 5 Parent company annual accounts Investments in investment funds (with underlying investments in debt, equity securities, real estate and derivatives) are included under equity securities. Non-trading derivatives Non-trading derivatives by type 2013 2012 Derivatives used in - fair value...

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... investment funds and EUR 1,759 million shares in third party managed investment funds. Exposure to debt securities ING Group's exposure to debt securities is included in the following balance sheet lines: Debt securities 2013 2012 Available-for-sale investments Held-to-maturity investments Loans...

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...4 Consolidated annual accounts Debt securities by type and balance sheet lines - Available-for-sale investments and Assets at amortised cost (insurance operations) Available-for-sale investments 2013 2012 Held-to-maturity investments 2013 2012 2013 Loans and advances to customers 2012 2013 Amounts...

Page 126
...the consolidated annual accounts of ING Group continued Debt securities by type and balance sheet lines - Available-for-sale investments and Assets at amortised cost (total) Available-for-sale investments 2013 2012 Held-to-maturity investments 2013 2012 2013 Loans and advances to customers 2012 2013...

Page 127
...' bonds (1) 2013 Balance sheet value Revaluation reserve (before tax) Impairments (before tax) Amortised cost value Fair value of investments held-to-maturity 2 Report of the Executive Board Greece Government bonds available-for-sale Italy Government bonds available-for-sale Government bonds at...

Page 128
...-for-sale and held-to-maturity investments Available-for-sale equity securities 2013 2012 2013 Available-for-sale debt securities 2012 2013 Held-to-maturity 2012 2013 Total 2012 To/from loans and advances to customers/amounts due from banks -282 -282 -282 -282 126 ING Group Annual Report 2013

Page 129
Notes to the consolidated annual accounts of ING Group continued 1 Who we are In 2013, To/from loans and advances to customers/amounts due from banks in relation to Available-for-sale debt securities relates to a debt security that was reclassified to Loans and advances to customers because there ...

Page 130
...Borrowed debt securities are not recognised in the balance sheet and amount to nil (2012: nil). Investments in connection with the insurance operations with a combined carrying value of nil (2012: nil) did not produce any income for the year ended 31 December 2013. 128 ING Group Annual Report 2013

Page 131
... Report of the Executive Board Eliminations Loans and advances to customers by type - banking operations Netherlands 2013 2012 2013 International 2012 2013 Total 2012 Loans to, or guaranteed by, public authorities Loans secured by mortgages Loans guaranteed by credit institutions Personal lending...

Page 132
... the amount, timing or certainty of the consolidated cash flows of the Group. Loan loss provisions analysed by type - banking operations Netherlands 2013 2012 2013 International 2012 2013 Total 2012 Loans to, or guaranteed by, public authorities Loans secured by mortgages Loans guaranteed by credit...

Page 133
...listed investment Balance sheet value Total assets Total liabilities Total income Total expenses 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information TMB Public Company Limited SulAmÃ©rica S.A. CBRE Retail Property Fund Iberica LP ING Real Estate Asia Retail Fund Ltd...

Page 134
...the consolidated annual accounts of ING Group continued Changes in Investments in associates 2013 2012 Opening balance Additions Revaluations Share of results Dividends received Disposals Impairments Exchange rate differences Changes in the composition of the group and other changes Closing balance...

Page 135
... year Most recent appraisal two years ago 100 100 99 1 100 4 Consolidated annual accounts ING Group's exposure to real estate is included in the following balance sheet lines: Real estate exposure 2013 2012 Real estate investments Investments in associates Other assets - property development...

Page 136
...the consolidated annual accounts of ING Group continued Changes in property in own use 2013 2012 Opening balance Additions Transfers to and from Other assets Depreciation Revaluations Impairments Reversal of impairments Disposals Exchange rate differences Changes in the composition of the group and...

Page 137
Notes to the consolidated annual accounts of ING Group continued 1 Who we are 10 INTANGIBLE ASSETS Changes in intangible assets Value of business acquired 2013 2012 2013 Goodwill 2012 2013 Software 2012 2013 Other 2012 2013 Total 2012 2 Report of the Executive Board Opening balance Additions ...

Page 138
... acquisition costs Life insurance 2013 2012 2013 Non-life insurance 2012 2013 Total 2012 Opening balance Capitalised Amortisation and unlocking Effect of unrealised revaluations in equity Exchange rate differences Changes in the composition of the group and other changes Closing balance 4,513 616...

Page 139
... Assets held for sale 2013 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 2012 Cash and balances with central banks Amounts due from banks Financial assets at fair value through profit and loss Available-for-sale investments Loans and advances to customers...

Page 140
... value. The related charges are included in the profit and loss account in Net result from discontinued operations (for the Insurance and Investment Management businesses in Asia) and in Result on disposals of group companies (for ING Direct UK). Fair value measurement The fair value hierarchy...

Page 141
... non-financial assets - Held for sale 2013 Level 1 Level 2 Level 3 Total Real estate investments Property in own use 6 102 108 6 102 108 2 Report of the Executive Board 13 OTHER ASSETS Other assets by type 2013 2012 2011 Net defined benefit assets Deferred tax assets Reinsurance and insurance...

Page 142
... the consolidated annual accounts of ING Group continued Other Other includes EUR 3,400 million (2012: EUR 2,630 million) related to transactions still to be settled at balance sheet date. EQUITY 14 SHAREHOLDERS' EQUITY (PARENT)/NON-VOTING EQUITY SECURITIES Total equity 2013 2012 2011 Share capital...

Page 143
...in 2012 and 2011. Revaluation reserve Changes in revaluation reserve 2013 Property in own use reserve Available- forsale reserve and other Cash flow hedge reserve 2 Report of the Executive Board 3 Corporate governance Total Opening balance Unrealised revaluations Realised gains/losses transferred...

Page 144
Notes to the consolidated annual accounts of ING Group continued Currency translation reserve Changes in currency translation reserve 2013 2012 2011 Opening balance Unrealised revaluations Realised gains/losses transferred to profit and loss Exchange rate differences Closing balance -841 335 213 ...

Page 145
... 2 Report of the Executive Board 1,290 -665 -5,361 The repurchase premium and interest of EUR 1 billion is paid in relation to the repayment of the EUR 2 billion non-voting equity securities. Changes in treasury shares Amount 2013 2012 2011 2013 2012 Number 2011 3 Corporate governance Opening...

Page 146
... annual accounts of ING Group continued ING Groep N.V. is subject to legal restrictions regarding the amount of dividends it can pay to the holders of its ordinary shares. Pursuant to the Dutch Civil Code, dividends can only be paid up to an amount equal to the excess of the company's own funds...

Page 147
... below. ING U.S., Inc - Balance sheet Interest held (%) Total assets Total liabilities Total equity Minority interests 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 2013 ING U.S. - total ING Group's share ING U.S., Inc - Profit and loss account 2013 100 56...

Page 148
... two months following the announcement of a resolution to that effect. LIABILITIES 15 SUBORDINATED LOANS Subordinated loans Notional amount in original currency Interest rate Year of issue First call date Step-up Total Lent on to ING Bank Lent on to NN Group Balance sheet value 2013 2012 9.000...

Page 149
... available including the payment of commercial paper borrowings relating to debt securities in issue of EUR 8,081 million (2012: EUR 13,129 million). Dutch government guaranteed notes The following bonds are all issued under the Credit Guarantee Scheme of the State of the Netherlands. ING Group pays...

Page 150
... in 2013, ING Bank repurchased an additional EUR 1.1 billion and USD 500 million of Dutch government guaranteed notes. These repurchases resulted in an additional charge of EUR 11 million (EUR 8 million after tax) and is recognised in Other income - Other. 2012 - Exchanges of certain debt securities...

Page 151
... 2012 Insurance and investment contracts 2013 2012 2 Report of the Executive Board Provision for non-participating life policy liabilities Provision for participating life policy liabilities Provision for (deferred) profit sharing and rebates Life insurance provisions excluding provisions for risk...

Page 152
... settlements and claim settlement costs - for the current year - for prior years -452 -618 -1,070 -2 3,238 -473 -643 -1,116 -1 3,179 -1 -13 -14 -1 -13 -14 -453 -631 -1,084 -2 3,316 -474 -656 -1,130 -1 3,263 Exchange rate differences Closing balance 78 84 150 ING Group Annual Report 2013

Page 153
...of 3.0% to 4.0% (2012: 3.0% to 4.0%). Changes in investment contracts liabilities 2013 2012 2 Report of the Executive Board Opening balance Changes in the composition of the group and other changes 12,628 -9,504 3,124 3,773 13,198 53 13,251 3 Corporate governance Current year liabilities Prior...

Page 154
... transactions. In 2013 excess cash in the banking operations was used to redeem short-term professional funding. 20 CUSTOMER DEPOSITS AND OTHER FUNDS ON DEPOSIT Customer deposits and other funds on deposit 2013 2012 Savings accounts Credit balances on customer accounts Corporate deposits Other 289...

Page 155
...6,439 71 3,205 18,752 5 Parent company annual accounts Other non-trading derivatives mainly includes interest rate swaps for which no hedge accounting is applied. Designated as at fair value through profit and loss by type 2013 2012 Debt securities Funds entrusted Subordinated liabilities 12,415...

Page 156
Notes to the consolidated annual accounts of ING Group continued 22 OTHER LIABILITIES Other liabilities by type 2013 2012 2011 Deferred tax liabilities Income tax payable Net defined benefit liability Other post-employment benefits Other staff-related liabilities Other taxation and social security ...

Page 157
...2012 2013 Other 2012 2013 Total 2012 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts Opening balance Additions Releases Charges Exchange rate differences Changes in the composition of the group and other changes Closing balance...

Page 158
... income on non-trading derivatives (hedge accounting) Other interest income Interest income banking operations Interest expense on deposits by banks Interest expense on customer deposits and other funds on deposit Interest expense on debt securities Interest expense on subordinated loans Interest...

Page 159
... consolidated annual accounts of ING Group continued 1 Who we are 24 GROSS PREMIUM INCOME Gross premium income 2013 2012 2011 Gross premium income from life insurance policies Gross premium income from non-life insurance policies 7,848 1,682 9,530 8,973 1,733 10,706 9,597 1,695 11,292 2 Report...

Page 160
...bonds and an impairment of EUR 189 million was recognised on subordinated debt from Irish banks. Both are included in Impairments of available-for-sale debt securities. Reference is made to the 'Risk management' section for further information on these impairments. 158 ING Group Annual Report 2013

Page 161
... on investments per segment Impairments 2013 2012 2011 2013 Reversal of impairments 2012 2011 2 Report of the Executive Board Retail Belgium Retail Germany Retail Rest of World Commercial Banking Netherlands Life Netherlands Non-life Insurance Europe Japan Life Corporate Line Banking Insurance...

Page 162
Notes to the consolidated annual accounts of ING Group continued Fee and commission expenses Banking operations 2013 2012 2011 2013 Insurance operations 2012 2011 2013 2012 Total 2011 Funds transfer Securities business Management fees Brokerage and advisory fees Other 365 111 28 81 514 1,099 336 ...

Page 163
... to the consolidated annual accounts of ING Group continued 1 Who we are 29 NET TRADING INCOME Net trading income Banking operations 2013 2012 2011 2013 Insurance operations 2012 2011 2013 2012 Total 2011 Securities trading results Foreign exchange transactions results Derivatives trading results...

Page 164
...,278 3 20 23 13,159 Profit sharing and rebates 2013 2012 2011 Distributions on account of interest or underwriting results Bonuses added to policies -26 77 51 -28 52 24 21 93 114 The total Cost of acquiring insurance business (life and non-life) and investment contracts amounted to EUR 2,122...

Page 165
... Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts Intangible amortisation and (reversals of) impairments Impairment losses 2013 2012 2011 2013 Reversals of impairments 2012 2011 2013 2012 Total 2011 Property and equipment Property development...

Page 166
... annual accounts of ING Group continued 33 STAFF EXPENSES Staff expenses Banking operations 2013 2012 2011 2013 Insurance operations 2012 2011 2013 2012 Total 2011 Salaries Pension costs Other staff-related benefit costs Social security costs Share-based compensation arrangements External employees...

Page 167
... be funded either by cash or by newly issued shares at the discretion of ING Group. Changes in option rights outstanding Options outstanding (in numbers) 2013 2012 2011 Weighted average exercise price (in euros) 2013 2012 2011 2 Report of the Executive Board 3 Corporate governance Opening balance...

Page 168
... by ING's traders and are based on market data implied volatilities not on historical volatilities. Changes in share awards Share awards (in numbers) 2013 2012 2011 Weighted average grant date fair value (in euros) 2013 2012 2011 Opening balance Granted Performance effect Vested Forfeited Closing...

Page 169
...,098 million) respectively. Net interest income of EUR 14,429 million is presented in the following lines in the profit and loss account. Total net interest income 2013 2012 2011 2 Report of the Executive Board Interest result banking operations 23 Investment income - insurance operations 25 Other...

Page 170
...the consolidated annual accounts of ING Group continued 36 DISCONTINUED OPERATIONS As at 31 December 2013, ING U.S. and ING's remaining insurance and investment management businesses in Asia ('Asia'), excluding ING Japan are classified as discontinued operations. ING U.S. In light of ING's intention...

Page 171
...) 2012 2011 3 Corporate governance 4 Consolidated annual accounts Net result Attribution to non-voting equity securities Basic earnings Effect of dilutive instruments: Stock option and share plans 3,232 -526 2,706 4,161 -642 3,519 5,781 -1,520 4,261 3,825.0 3,796.1 3,783.7 5 Parent company...

Page 172
... to the consolidated annual accounts of ING Group continued Earnings per ordinary share from continuing operations (in euros) Amount (in millions of euros) 2013 2012 2011 Weighted average number of ordinary shares outstanding during the period (in millions) 2013 2012 2011 2013 Per ordinary share (in...

Page 173
... General ING Group's segments are based on the internal reporting structure by lines of business. The segments Insurance United States (US), Insurance US Closed Block VA, Investment Management US, and Corporate line US ceased to exist, due to the classification of Insurance ING U.S. as held for sale...

Page 174
... Non-life Insurance Europe Japan Life Investment Management (IM) Other Japan Closed Block VA Income from retail and private banking activities in the Netherlands, including the SME and mid-corporate segments. The main products offered are current and savings accounts, business lending, mortgages...

Page 175
... for Insurance which is partly offset by pension curtailments in the Netherlands. Reference is made to Note 36 'Discontinued operations' for information on discontinued operations. 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 173

Page 176
... by the US of EUR 386 million, which was partly offset by a pension curtailment of EUR 351 million following the new Dutch employee pension scheme announced in 2012. Reference is made to Note 36 'Discontinued operations' for information on discontinued operations. 174 ING Group Annual Report 2013

Page 177
... 810 5,781 4 Consolidated annual accounts Divestments in 2011 reflected the results on the sale of ING Real Estate Investment Management (REIM) and ING Car Lease as well as the operating result of the divested units. Special items in 2011 included costs for the Retail Netherlands change programme...

Page 178
... annual accounts of ING Group continued c. Banking activities Segments Banking 2013 Retail Netherlands Retail Belgium Retail Germany Retail Rest of World Commercial Banking Corporate Line Banking Total Banking Underlying income - Net interest result - Commission income - Total investment...

Page 179
... consolidated annual accounts of ING Group continued 1 Who we are Segments Banking 2011 Retail Netherlands Retail Belgium Retail Germany Retail Rest of World Commercial Banking Corporate Line Banking Total Banking Underlying income - Net interest result - Commission income - Total investment and...

Page 180
... annual accounts of ING Group continued Segments Insurance 2013 Netherlands Life Netherlands Insurance Non-Life Europe Japan Life IM Other Japan Closed Block VA Insurance Other Total Investment margin Fees and premium based revenues Technical margin Operating income non-modelled life business Life...

Page 181
...accounts of ING Group continued 1 Who we are Segments Insurance 2012 Netherlands Life Netherlands Non-Life Insurance Europe Japan Life IM Other Japan Closed Block VA Insurance Other Total Investment margin Fees and premium based revenues Technical margin Operating income non-modelled life business...

Page 182
... annual accounts of ING Group continued Segments Insurance 2011 Netherlands Life Netherlands Non-Life Insurance Europe Japan Life IM Other Japan Closed Block VA Insurance Other Total Investment margin Fees and premium based revenues Technical margin Operating income non-modelled life business Life...

Page 183
...54,583 40,154 14,429 2 Report of the Executive Board Interest income and interest expenses breakdown by segments Banking 2012 Retail Netherlands Retail Belgium Retail Germany Retail Rest of World Commercial Banking Corporate Line Banking Total Banking Interest income Interest expense 7,986 1,952...

Page 184
... the consolidated annual accounts of ING Group continued Total assets and Total liabilities by segment 2013 Total assets Total liabilities Total assets 2012 Total liabilities Total assets 2011 Total liabilities Netherlands Life Netherlands Non-life Insurance Europe Japan Life Investment Management...

Page 185
... assets 2013 2012 4 Consolidated annual accounts 5 Parent company annual accounts Opening balance Interest income Remeasurements: Return on plan assets excluding amounts included in interest income Employer's contribution Participants' contributions Benefits paid Effect of settlement Exchange rate...

Page 186
... benefit will be based on average wage over period of employment with a 2% annual accrual rate; â€¢ The pension funds, not ING, will bear responsibility for funding adequacy; ING Bank and Insurance/IM to pay an additional risk premium; â€¢ Responsibility for inflation indexation will move to the new...

Page 187
Notes to the consolidated annual accounts of ING Group continued 1 Who we are Amounts recognised directly in Other comprehensive income (equity) were as follows: Remeasurement of the net defined benefit asset/liability 2013 2012 Remeasurement of plan assets Actuarial gains and losses arising from ...

Page 188
... 2014 with regard to the transfer of all future funding and indexation obligations under ING's current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. Reference is made to Note 60 'Subsequent events' for information on this agreement. 186 ING Group Annual Report 2013

Page 189
... of the net pension asset related to the Dutch defined benefit pension fund from ING Group's balance sheet. Reference is made to Note 60 'Subsequent events' for information on this agreement. 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information...

Page 190
... annual accounts of ING Group continued Closed defined benefit plan in the Netherlands - Major categories of plan assets Fair value of plan assets Quoted price 2013 2012 2013 Other 2012 2013 Total 2012 Investment portfolio of the pension fund Debt securities (fixed income investments) - Governments...

Page 191
... (+) Net asset (-) 2012 5 Parent company annual accounts Investments Real estate investments Financial assets and liabilities at fair value through profit and loss Deferred acquisition costs and VOBA Depreciation Insurance provisions Cash flow hedges Pension and post-employment benefits Other...

Page 192
... of ING's Insurance and investment management businesses in Asia as a disposal group held for sale. Reference is made to Note 12 'Assets and liabilities held for sale'. Changes in deferred tax Net liability (+) Net asset (-) 2010 Change through equity Change through net result Exchange rate...

Page 193
... economic benefit from those investments will not be taxable at parent company level. Profit and loss account - Taxation Taxation on continuing operations by type Netherlands 2013 2012 2011 2013 2012 International 2011 2013 2012 Total 2011 4 Consolidated annual accounts Current taxation Deferred...

Page 194
... to the consolidated annual accounts of ING Group continued The weighted average statutory tax rate in 2013 is lower compared to 2012. This is mainly caused by changes in the composition of the profit before tax from continuing operations in 2013 compared to 2012. In 2013 more profits were taxable...

Page 195
... of ING Group. Fair value of financial assets and liabilities Estimated fair value 2013 2012 2013 Balance sheet value 2012 2 Report of the Executive Board Financial assets Cash and balances with central banks Amounts due from banks Financial assets at fair value through profit and loss - trading...

Page 196
... from banks are generally based on quoted market prices or, if unquoted, on estimates based on discounting future cash flows using available market interest rates offered for receivables with similar characteristics, similar to Loans and advances to customers described below. Financial assets at...

Page 197
... levels are recognised as of the date of the event or change in circumstances that caused the transfer. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 198
... fair values of financial assets and liabilities 2013 Level 1 Level 2 Level 3 Total Financial assets Trading assets Investments for risk of policyholders Non-trading derivatives Financial assets designated as at fair value through profit and loss Available-for-sale investments 27,684 38,228...

Page 199
...-sale investments 2 Report of the Executive Board 2013 Trading assets Non-trading derivatives Total Opening balance Amounts recognised in the profit and loss account during the year Revaluation recognised in equity during the year Purchase of assets Sale of assets Maturity/settlement Transfers...

Page 200
... profit and loss account during the year (Level 3) 2013 Held at balance sheet date Derecognised during the year Total Financial assets Trading assets Investments for risk of policyholders Non-trading derivatives Financial assets designated as at fair value through profit and loss Available-for-sale...

Page 201
... to the consolidated annual accounts of ING Group continued 1 Who we are Amounts recognised in the profit and loss account during the year (Level 3) 2012 Held at balance sheet date Derecognised during the year Total Financial assets Trading assets Investments for risk of policyholders Non-trading...

Page 202
Notes to the consolidated annual accounts of ING Group continued Furthermore, Level 3 financial assets includes approximately EUR 0.2 billion which relates to financial assets that are part of structures that are designed to be fully neutral in terms of market risk. Such structures include various ...

Page 203
...correlation 5 Parent company annual accounts - Other 1 Available for sale - Debt - Equity - Asset backed securities Other 506 509 149 8 2,601 n/a n/a n/a 1,448 6 Other information Equity securities Level 3 equity securities mainly include corporate investments, fund investments, real estate...

Page 204
... losses recognised in Other comprehensive income that relate to Available-for-sale assets are included in the Revaluation reserve - Available-for-sale reserve and other and Property in own use are included in the Revaluation reserve - Property in own use reserve. 202 ING Group Annual Report 2013

Page 205
... in determining fair values of financial assets and liabilities 2013 Level 1 Level 2 Level 3 Total Financial assets Cash and balances with central banks Amounts due from banks Held-to-maturity investments Loans and advances to customers 4 Consolidated annual accounts 13,316 4,830 1,225 5,148 24...

Page 206
... consolidated annual accounts of ING Group continued Changes in Level 3 Non-financial assets 2013 Real estate investments Property in own use Total non-financial assets Opening balance Amounts recognised in the profit and loss account during the year Revaluation recognised in equity during the year...

Page 207
...Report of the Executive Board 22 734 13 4,963 Classification of bonds in Levels 2 and 3 is mainly a result of low trading liquidity in the relevant markets. 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 208
... of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket. ING Group applies the IFRS-EU 'carve-out' to its retail operations in which the net exposure of retail funding (savings and current accounts) and retail lending (mortgages) is hedged. The hedging...

Page 209
...derivatives and nonderivatives designated under net investment hedge accounting was nil (2012: nil). 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 207

Page 210
... consolidated annual accounts of ING Group continued 48 ASSETS BY CONTRACTUAL MATURITY Amounts presented in these tables by contractual maturity are the amounts as presented in the balance sheet. Assets by contractual maturity 2013 Less than 1 month (1) 1-3 months 3-12 months 1-5 years Over 5 years...

Page 211
... risk is managed. Liabilities by maturity 2013 Less than 1 month (1) 1-3 months 3-12 months 1-5 years Over 5 years Maturity not applicable Adjustment (2) Total 2 Report of the Executive Board Subordinated loans Debt securities in issue Other borrowed funds Amounts due to banks Customer deposits...

Page 212
... consolidated annual accounts of ING Group continued Liabilities by maturity 2012 Less than 1 month (1) 1-3 months 3-12 months 1-5 years Over 5 years Maturity not applicable Adjustment (2) Total Subordinated loans Debt securities in issue Other borrowed funds Amounts due to banks Customer deposits...

Page 213
... used in securities lending or sale and repurchase transactions. Reference is made to Note 57 'Structured entities'. Transfer of financial assets not qualifying for derecognition Securities lending 2013 Equity Debt Sale and repurchase Equity Debt 2 Report of the Executive Board Transferred assets...

Page 214
...consolidated annual accounts of ING Group continued 52 OFFSETTING FINANCIAL ASSETS AND LIABILITIES The following tables include information about rights to offset and the related arrangements. The amounts included consist of all recognised financial instruments that are presented net in the balance...

Page 215
...Report of the Executive Board 2013 Gross amounts of recognised financial assets Net amount Amounts due to banks Repurchase, securities lending and similar agreements Other 1,085 2,372 3,457 1,085 2,355 3,440 21 21 1,063 1,714 2,777 1 641 642 -17 -17 Customer deposits and other funds on deposit...

Page 216
.... In response to the needs of its customers, the Group offers financial products related to loans. These products include traditional off-balance sheet credit-related financial instruments. Contingent liabilities and commitments 2013 Less than 1 month 1-3 months 3-12 months 1-5 years Over 5 years...

Page 217
... arithmetic returns). ING's Dutch insurance subsidiaries have rejected these claims and will defend themselves in these proceedings. 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 215

Page 218
... Group ING General Managers' Pensions (Belangenvereniging ING-Directiepensioenen), together with a number of individual retired Dutch General Managers of ING, instituted legal proceedings against ING's decision not to provide funding for indexing Dutch General Managers' pensions directly insured...

Page 219
... October 2013, the sale of a second tranche further reduced ING Group's interest in ING U.S. to approximately 57%. Reference is made to Note 59 'Other events'. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information...

Page 220
... to the consolidated annual accounts of ING Group continued Divestments effective in 2013 and divestments announced in 2013 but not closed in 2013 - Asia In 2012, ING's Insurance and investment management businesses in Asia and the (internally) reinsured Japan SPVA business in corporate reinsurance...

Page 221
...2 Report of the Executive Board 3 Corporate governance ING Direct UK ING Life Korea Total General Primary line of business Sales proceeds Cash proceeds (1) Sales proceeds Assets Cash and cash equivalents Financial assets at fair value through profit and loss Available-for-sale investments Loans...

Page 222
... Retail Rest of World (ING Direct). In September 2012, ING sold all of its shares in Capital One Financial Corporation as disclosed in Note 25 'Investment income'. Most significant companies divested in 2012 ING Direct USA ING Direct Canada Insurance Malaysia Total General Primary line of business...

Page 223
...EUR 347 million. ING Car Lease was previously partly included in both Commercial and Retail Banking. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 221

Page 224
... Real Estate securities ING REIM Asia and Europe ING Car Lease Pacific Antai Life Insurance Latin American Company Ltd operations Total General Primary line of business Sales proceeds Cash proceeds (1) Non-cash proceeds Sales proceeds Assets Cash assets Investments Loans and advances to customers...

Page 225
... of business are as follows: Companies treated as part of the banking operations Proportion of ownership interest held by the Group 2 Report of the Executive Board 2013 Subsidiary ING Bank N.V. Bank Mendes Gans N.V. ING Lease (Nederland) B.V. ING Corporate Investments B.V. ING Vastgoed Management...

Page 226
...Corporation (1) Lion Connecticut Holdings Inc. (1) ReliaStar Life Insurance Company (1) ReliaStar Life Insurance Company of New York (1) Security Life of Denver Insurance Company (1) ING USA Annuity and Life Insurance Company (1) ING Investment Management Co (1) Security Life of Denver International...

Page 227
...'). In order for CBC to fulfil its guarantee, ING legally transfers mainly Dutch mortgage loans originated by ING to CBC. Furthermore ING offers CBC protection against deterioration of the mortgage loans. CBC is consolidated by ING Group. 7 Additional information ING Group Annual Report 2013 225

Page 228
... to the consolidated annual accounts of ING Group continued Covered bond programme Fair value pledged mortgage loans 2013 2012 Cash balance structured entity 2013 2012 Structured entity ING Covered Bond Company B.V. ('CBC') 43,173 43,173 42,820 42,820 2,282 2,282 1,270 1,270 In general, the...

Page 229
... report therefore are part of the annual accounts. For the post-employment benefit plans see Note 44 'Pension and other post-employment benefits'. In 2013, 'Management Boards' includes the Management Boards of ING Bank N.V. ('ING Bank'), NN Group N.V. ('NN Group') and the Named Executive Officers...

Page 230
... euros Executive Board of ING Groep N.V. (1) Management Board ING Bank (2) Management Named Executive Board Officers ING U.S. (4) NN Group (2, 3) Total Fixed compensation - Base salary - Pension costs - Retirement benefits - Termination benefits Variable compensation - Upfront cash - Upfront shares...

Page 231
... consolidated annual accounts of ING Group continued 1 Who we are Loans and advances to key management personnel Amount outstanding 31 December amounts in thousands of euros 2013 2012 Average interest rate 2013 2012 2013 Repayments 2012 Executive Board members Management Board members of ING Bank...

Page 232
...). This adjustment served to de-link the IABF from ING Direct USA by putting ING Bank in its place as counterparty for the Dutch State and became effective at the closing of the sale in February 2012. Under the terms of the original transaction ING Direct USA held on its balance the remaining 20% of...

Page 233
... Commission. The European Commission approved these amendments by Decision of 16 November 2012. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 231

Page 234
...All assets and liabilities were transferred at the existing carrying value as included in ING Bank's balance sheet. This transaction was completed on 1 July 2013. ING has committed, amongst others, that Nationale-Nederlanden Bank will reach certain targets for mortgage production and consumer credit...

Page 235
...intellectual property license agreement, a joinder agreement and an equity administration agreement. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 233

Page 236
... the consolidated annual accounts of ING Group continued 59 OTHER EVENTS ING U.S. IPO of ING U.S. in May 2013 In May 2013, ING sold approximately 65.2 million ordinary shares in the Initial Public Offering ('IPO') of ING U.S., Inc., its U.S.-based retirement, investment and insurance business ('ING...

Page 237
... full migration of the clients business is expected to be finalised in the second quarter of 2014. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 235

Page 238
...the trade unions, the ING Pension Fund, the Central Works Council and the Association of Retired ING Employees (VSI) to transfer all future funding and indexation obligations under ING's current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. The agreement makes the ING...

Page 239
... 238 239 2 Report of the Executive Board Bank Risk Management Mission Risk governance Business model and risk profile Economic capital Ongoing changes in the regulatory environment Risk developments in 2013 Credit risk Market risk Funding and liquidity risk Non-financial risk Business risk 246 247...

Page 240
... transfer risk), market risk (including interest rate, equity, real estate and foreign exchange risks), insurance risk, liquidity & funding risk and business risk. In addition, ING Group is exposed to non-financial risks, e.g. operational and compliance risks. The way ING Group manages these risks...

Page 241
... most residential mortgage backed securities (RMBS), which exposures are based on country of risk. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 239

Page 242
..., net credit risk linked to Cyprus is not significant for ING Bank. NN Group has no credit risk linked to Cyprus. At the end of 2013 ING Bank holds CDS protection (notional value) on the Spanish government. Real Estate includes Real Estate Development, Real Estate Investments and Property in Own Use...

Page 243
...ï¬cant for ING Bank. NN Group has no credit risk linked to Cyprus. At the end of 2012 ING Bank holds CDS protection (notional value) on the Spanish government, Financial Institutions and covered bonds. Real Estate includes Real Estate Development, Real Estate Investments and Property in Own Use; it...

Page 244
...ING is mainly a life insurance company with long-term commitments to its clients, it is exposed to risk from low(er) interest rates. Other risks, such as longevity risk, will further increase this risk. The NN Group entities have an asset liability management (ALM) process in place where investments...

Page 245
... significant management actions, other than reductions to the rates in our policies where relevant. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 243

Page 246
...ING Bank's risk management disclosures provides qualitative and quantitative disclosures about credit, market, liquidity and non-financial risks based on International Financial Reporting Standards as adopted by the European Union 'IFRS-EU'. The risk management section is in line with the accounting...

Page 247
...in a timely manner. Governance Liquidity risk management framework Liquidity risk appetite Funding Liquidity buffers Liquidity risk transfer and pricing Contingency funding plan Regulatory developments 305 306 306 306 307 307 308 308 410 7 Additional information ING Group Annual Report 2013 245

Page 248
... to internal and external stakeholders on risk management and value creation. Risk management benefits ING Bank and its stakeholders directly by providing more efficient capitalisation and lower costs of risk and funding. The cost of capital is reduced by working closely with rating agencies...

Page 249
... two lines, including financial and non-financial risk management and forms the third line of defence. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 250
... of risk management into the annual strategic planning process, the MBB issues a Planning Letter which provides the corporate strategic direction, and addresses key risk issues. Based on the Planning Letter, the business lines and business units develop their business plans which align with the Bank...

Page 251
... within ING Bank risk organisation. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts Chief Risk Officer Risk and Capital Integration Bank Model Validation Bank Credit Risk Management Bank Market Risk Management Bank Non...

Page 252
...market variables. Market risks include interest rate, equity, real estate, implied volatility, credit spread, and foreign exchange risks; â€¢ Liquidity risk: the risk that ING Bank or one of its subsidiaries cannot meet its financial liabilities when they come due, at reasonable cost and in a timely...

Page 253
... please refer to the remuneration report in the corporate governance section of the annual report. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 251

Page 254
...provides senior and local management with the information they need to manage risk. ING uses iRisk, an application supporting operational risk functions for incident reporting, action tracking, risk assessments, business impacts assessments and key control testing. 252 ING Group Annual Report 2013

Page 255
...: 2 Report of the Executive Board 3 Corporate governance Step 1. Deï¬ne ING Bank's risk ambition Annual MBB approval & SB ratification Step 2. Setting ING Bank's Risk Appetite Statements 4 Consolidated annual accounts Step 3. Cascade into Statements per risk type and per business ALCO Bank and...

Page 256
... internal and external targets. Managing liquidity and funding risk focuses on both 'business as usual' (based on the run-off profile to show the stickiness of deposits combined with the run-off of assets without new production) and a stressed situation. There we define liquidity risk as the time...

Page 257
.... 4 Consolidated annual accounts 5 Parent company annual accounts GPD Growth Unemployment Real estate prices Interest rates Credit spreads Equity prices Savings outï¬,ow Prof. Funding availability Downgrades Haircuts Etc. Net interest income Trading income Other income Credit risk costs CDA...

Page 258
... is in line with the net market value (or surplus) definition. The process of EC modelling enables ING Bank to allocate economic capital to the business units and support risk-adjusted performance measurement via the Risk Adjusted Return on Capital (RAROC). The use of RAROC increases focus on...

Page 259
... Regulatory Capital (Bank diversified only) by risk type Economic Capital 2013 2012 2013 Regulatory Capital 2012 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Credit risk Add-on credit risk Market risk Business risk Operational risk Total banking operations...

Page 260
... to survive a short-term liquidity stress, where the latter aims to ensure that long term asset activities are similarly funded. Separate from, but in line with the Basel III proposal, on a country level local regulators are becoming more stringent on the maximum credit risk bank subsidiaries and...

Page 261
... the business line Retail Banking, is concentrated within the Benelux. The weak economic environment was reflected by increased risk costs and elevated percentage of non-performing loans. The Netherlands 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent...

Page 262
...and challenging European commercial real estate markets were reflected in the risk costs and nonperforming loans. Further, in 2013 DNB performed an Asset Quality Review for Commercial Real Estate (CRE) primarily focusing on relevant Income Producing Real Estate portfolios (IPRE) at ING Bank globally...

Page 263
... policies for the consolidated annual accounts' Governance CRM within ING Bank belongs to the second line of defence (the front office being the first, internal audit the third) and aligns the credit risk taking with the strategic planning of ING Bank. It is responsible for reviewing and managing...

Page 264
...Chief Risk Officer Credit Risk Management Bank Commercial Banking CRM Credit Capitals & Retail CRM Global Credit Restructuring Information Management Services Strategy & Business Management Commercial Banking & Corporate Line Retail Banking Benelux & International Credit risks of commercial...

Page 265
.... CRM also has its own dedicated intranet site, providing Credit Risk Alerts and the Policy House. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 263

Page 266
..., money market, lending, investment, but excluding settlement), and connected to ING Bank high-level risk appetite across all risk types (credit, market, business and nonfinancial risk). They consist of a set of high-level credit risk metrics; expected loss, economic capital, risk-weighted assets...

Page 267
... for commercial banking business. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information The retail risk portfolio program is defined as a set of policies and processes, which are laid down to manage a retail risk...

Page 268
... assessed on a name-by-name basis. For each type of counterparty (corporate, banks/financial institution, structured products clients) there is a separate process. The line credit risk managers are organised along the business lines of ING Bank and are specialised in the relevant area of expertise...

Page 269
.... The short overview below shows the main differences between RC and EC, within ING Bank. Conceptual differences between Regulatory Capital and Economic Capital Regulatory Capital Economic capital 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company...

Page 270
...; and â€¢ The granularity of the position. ING Bank uses the Internal Assessment Approach for the support facilities it provides to Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp., based on externally published rating agency methodologies. 268 ING Group Annual Report 2013

Page 271
...EAD and LGD). 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information Credit Scoring/Acceptance Performance Measurement Basel II Risk Components Regulatory Capital/RWA 7 Additional information PD EAD LGD Maturity...

Page 272
...% of ING Bank's credit risks have been rated using one of the in-house developed PD rating models. Within the AIRB Portfolio, the level of Basel II ratings exceeds 99% coverage by exposure. Some of these models are universal in nature, such as models for large corporates, commercial banks, insurance...

Page 273
... ING Bank portfolio per risk category, as % of total EAD Lending 2013 (1) AIRB SA AIRB Investment SA Money Market AIRB SA Pre-Settlement AIRB SA AIRB Total Total (ALL) SA AIRB + SA 2 Report of the Executive Board Sovereigns Institutions Corporate Residential mortgages Other retail Securitisation...

Page 274
... within ING Bank. Its core strategy was gathering customer deposits and providing lending products to its retail customers. The savings product is typically the first product to be launched in a country followed by mortgages and other retail products (current accounts, unsecured loans, credit cards...

Page 275
... Process Policy Data Quality Regulatory Loan Loss Provisioning Basel II / Basel III 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts CDD/MiFID 5 Parent company annual accounts IFRS Sarbanes-Oxley Straight-through Processing Workï¬,ow Management One Time...

Page 276
... is essential. It enables us to link company information from different internal and external databases, with different local identification codes. Additionally, ING Bank automatically uploads credit ratings (from S&P, Fitch, and Moody's) and any (new) security ID (CUSIP, SEDOL, Bloomberg ID, or...

Page 277
... and actions are being planned to further improve the credit information technology and reporting. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 275

Page 278
... ING Bank Credit risk portfolio ING Bank's credit exposure is mainly related to traditional lending to individuals and businesses followed by investments in bonds and other securitised assets. Loans to individuals are mainly mortgage loans secured by residential property. Loans (including guarantees...

Page 279
.... Risk concentration: ING Bank portfolio, by economic sector (1) Commercial Banking 2013 2012 Retail Banking Benelux 2013 2012 Retail Banking International 2013 2012 2 Report of the Executive Board Corporate Line 2013 2012 Total ING Bank 2013 2012 Private Individuals Commercial Banks Non-Bank...

Page 280
.... Plan A generally consists of a consensual restructuring with the present owner and, sometimes, the executive management, based on debt reduction, additional collateral or external equity versus improved conditions and risk / reward profile for the bank. In the work out practice, ING faces a number...

Page 281
... Non-performing 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Possible ratings Typical ratings Deterioration in risk Significant intervention Impaired Account Ownership Credit Risk Management Primary Manager Accounting provisioning Credit quality: ING Bank...

Page 282
...The Netherlands. The increase in the real estate industry was the result of deteriorating markets in Spain, The Netherlands and Portugal. The share of spanish real estate in the total ING Bank real estate portfolio, performing and non-performing, is 6%, which is unchanged compared to 2012. Loan loss...

Page 283
... (1) Commercial Banking 2013 2012 Retail Banking Benelux 2013 2012 Retail Banking International 2013 2012 2013 Total ING Bank 2012 Opening Balance Changes in the composition of the group Write-offs Recoveries Increase/(decrease) in loan loss provision Exchange or other movements Closing Balance...

Page 284
... issued in October 2013. In order to ensure compliance with these new recommendations, one of the measures implemented was to include Watchlist clients to the scope. As a result the outstanding amount of Forborn loans in 2013 is not comparable with the 2012 level. 282 ING Group Annual Report 2013

Page 285
... to expect and claim from that third party to pay an amount, if the customer fails on its obligations to ING Bank. The most common examples are guarantees (such as parent guarantees and export credit insurances) and letters of comfort. 7 Additional information ING Group Annual Report 2013 283

Page 286
... on the type of covers. For asset collateral, the valuation sources can be the customer's balance sheet (e.g. inventory, machinery, and equipment), nominal value (e.g. cash, receivables), market value (e.g. securities and commodities), independent valuer (commercial real estate) and market indices...

Page 287
... Loan 2 Report of the Executive Board MtM after netting Mortgages Eligible Financial Collateral Other Basel II eligible Guaran- Non Basel tees II eligible No Cover/ Data not available Partially covered Fully covered Consumer Lending Commercial Banking Retail Banking Benelux Retail Banking...

Page 288
... or annual basis, the mortgages value is updated in Vortex using the relevant house price index (the NVM Index in the Netherlands, Level Housing Index in Australia, Crif Real Estate Appraisal Company in Italy, Ministerio de Fomento in Spain and Stadim in Belgium). 286 ING Group Annual Report 2013

Page 289
... house price in the Netherlands. The numbers shown are conservative as the savings pledged to the mortgage product, 'Spaarhypotheek' (or Mortgage with external Saving account) present in the Dutch mortgage portfolio are not taken into account in the table above. ING Group Annual Report 2013...

Page 290
... valuation policy and governance within ING Bank ensures that the cover values reflect the current fair value on the date of the valuation. All commercial properties financed by ING Bank need to be (re)-valued within three years' period or more frequently if market conditions or the risk profile...

Page 291
... available >0%25% >25%50% >50%75% Value to Loan >75%100% 2 Report of the Executive Board Industry >100% Real Estate of which Non-performing Natural Resources of which Non-performing Commercial Banks of which Non-performing Transportation & Logistics of which Non-performing Services of which Non...

Page 292
Risk management continued ING Bank Cover values including guarantees received - Business Lending portfolio - 2012 (1,2) Cover type Eligible Financial Collateral Other Basel II eligible Guarantees Non Basel II eligible No Cover/ Data not available >0%25% >25%50% >50%75% Value to Loan >75%100% ...

Page 293
... governance 4 Consolidated annual accounts Cover values including guarantees received - Business Lending portfolio - 2012 (1,2) Cover type Eligible Financial Collateral Other Basel II eligible Guarantees Non Basel II eligible No Cover/ Data not available >0%25% >25%50% >50%75% Value to Loan...

Page 294
... guarantees. During 2013, the exposure on bonds guaranteed by the Australia Government was brought down following the large-scale buyback. Over the year, the development of the covers is generally in line with that of the outstandings. Pre-settlement portfolio ING Bank uses various market pricing...

Page 295
.... Governance A governance framework has been established defining specific roles and responsibilities of business management, market risk management and internal approval bodies per activity. 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 296
...) by risk type Economic Capital 2013 2012 2013 Regulatory Capital 2012 Trading Interest rate risk in the banking books Foreign exchange Real Estate Equity Investments Market risk 527 2,629 130 563 880 4,729 386 3,271 217 722 1,730 6,326 667 37 747 25 704 772 294 ING Group Annual Report 2013

Page 297
... 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts ING Bank Bank Treasury Capital Management FX, Interest and Liquity Risk Equity and Structural FX Risks Retail Banking Benelux Retail Banking International Commercial Banking...

Page 298
... risk with the commercial business. Risk measurement and the risk transfer process take place on a monthly basis, but more often if deemed necessary, for instance in volatile markets. The customer behaviour in relation to mortgages, loans, savings and demand deposits is modelled by MRM, based...

Page 299
... 283 47 3 1 17 68 2 Report of the Executive Board Earnings Sensitivity banking books per business (instantaneous parallel shock) 2013 -100 bps +100 bps -100 bps 2012 +100 bps By business Commercial Banking Retail Banking Benelux Retail Banking International Corporate Line Total -73 -52 -52 -11...

Page 300
... exposure at amortised cost showed an upward move. This move was mitigated by cash flow hedges, which revaluate through equity. The increased sensitivity of other currencies results from an enhancement in the modelling of savings in Australia in Australian dollars. 298 ING Group Annual Report 2013

Page 301
... to a transfer of a subsidiary. The Foreign Investments in Korean Won decreased due to the sale of the equity stake in Kookmin Bank. The increase of the Foreign Investments in Indian Rupee is due to the inclusion of the minority interest. 7 Additional information ING Group Annual Report 2013 299

Page 302
...-off business consisting of and all Real Estate Development and Real Estate Investment Management activities which are being wound down by sale of assets, strict execution of contract maturity, internal transfers to the local ING Bank branches or through portfolio sales. Risk proï¬le ING Bank has...

Page 303
... of client business and market making. MRM is responsible for the development and implementation of trading risk policies and risk measurement methodologies, the reporting and monitoring of risk exposures against approved trading limits and the validation of pricing models. MRM also reviews trading...

Page 304
...scenario tests to monitor market risks under extreme market conditions. Since VaR in general does not produce an estimate of the potential losses that can occur as a result of extreme market movements, ING Bank uses structured stressed scenario tests for monitoring 302 ING Group Annual Report 2013

Page 305
...VaR is presented for the ING Commercial Banking trading portfolio for 2012 and 2013. Consolidated trading VaR ING Commercial Banking 2012-2013 In EUR millions 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 20 10 0 -10 5 Parent company annual accounts -20...

Page 306
... risk from the banking books are also incorporated under the Standardised Approach. Regulatory Capital 2013 SVaR VaR Total 2012 Total Interest rate/Credit spread Equity Foreign exchange Incremental Risk Charge Total Internal Model Approach Standardised model (1) Total Regulatory Capital Market Risk...

Page 307
... in time at a reasonable costs by attracting new unsecured funding or rolling over existing funding, or selling / repo-ing assets, potentially resulting in default. Liquidity risk can materialise both through trading and non-trading positions. Governance Within ING Bank, next to the Management Board...

Page 308
... but operable market conditions. â€¢ Managing risk by adhering to internally and externally imposed risk limits and balance sheet ratios. â€¢ Optimising the cost of funding under the principles above. With respect to funding sources, ING Bank manages its balance sheet prudently, whereby short-term...

Page 309
...In 2013, ING Bank had readily access to a large variety of funding sources, both short term and long term. In the table below, the various funding sources are presented in the funding mix. ING Bank Funding Mix 2013 2012 2 Report of the Executive Board Funding type Retail deposits Corporate & other...

Page 310
... The Head of Non-Financial Risk is responsible for developing the framework of policies and standards within ING Bank and for monitoring the quality of non-financial risk management in the divisions. The Non-Financial Risk Dashboard provides management on regional, 308 ING Group Annual Report 2013

Page 311
... Denial of Service (DDoS) attacks which resulted in some noticeable unavailability of services. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 309

Page 312
..., government (e.g. National Cyber Security Center) and Internet Service Providers (ISPs). Advanced Measurement Approach (AMA) ING Bank has an Operational Risk Capital model in place in which the risk profile is closely tailored to the internal profile of ING Bank and its divisions by using scenario...

Page 313
... separately, and combined to one business risk figure via the variance-covariance methodology. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 311

Page 314
... the Management Board and the Supervisory Board are at all times informed of, and understand, the material risks to which NN is exposed. Each business unit has its own chief risk officer, who reports (directly or indirectly) to the CRO. The CRO is primarily responsible for: â€¢ setting risk policies...

Page 315
... of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Information & communication Monitoring Objective setting Risk response & control Event identification 5 Parent company annual accounts Risk assessment 6 Other information â€¢ Objective setting. Business planning and...

Page 316
... a new investment class approval and review process (NICARP) for approving new investment classes of assets. At the holding level, NN establishes a global list of asset classes in which the business units may invest. Each business unit also maintains a local 314 ING Group Annual Report 2013

Page 317
... of a crisis, and other practical arrangements that may be required depending on the type of crisis. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 315

Page 318
... of NN's investment portfolio. The general account includes NN's life insurance and non-life insurance businesses. Market and credit risks include (i) equity risk, (ii) real estate risk, (iii) interest rate risk, (iv) credit spread risk, (v) counterparty default risk and (vi) foreign exchange risk...

Page 319
... capital 2012 comparable in scope to 2013 2012 4 Consolidated annual accounts 5 Parent company annual accounts As reported for ING Insurance EurAsia (excluding discontinued operations) in 2012 Changes in model and methodology Include Japan Life and Japan Closed Block VA as modelled business...

Page 320
... limits for non-life insurance risks are set by line of business for catastrophic events and individual risk; for instance, every year Netherlands Non-Life and ING Re reinsure windstorm catastrophe risks. As windstorm risk diversifies well with other risks taken by NN, from 2014 NN has increased its...

Page 321
... life insurance (COLI) business. The available regulatory capital in the Netherlands and the economic capital calculations for policyholder behaviour risk take into account the present value impact of changes in assumptions. 3 Corporate governance 4 Consolidated annual accounts 5 Parent company...

Page 322
... behaviour risk in 2013 are the corporate owned life insurance business in Japan Life, Netherlands Life, the unit linked business in Europe, and the Japan Closed Block VA. Economic capital for policyholder behaviour risk decreased due to the increase of the discount curve in Netherlands Life and...

Page 323
.... General Account Assets Market Value % of total 2013 Market Value % of total 2012 2 Report of the Executive Board Fixed income Government bonds Financial bonds Corporate bonds Asset Backed Securities Mortgages Other Loans Non-Fixed income Common & Preferred Stock Private Equity Mutual Funds Real...

Page 324
... under relevant investment mandates. Risk measurement Economic capital for real estate risk decreased from EUR 807 million at year-end 2012 to EUR 744 million at year-end 2013 due to reduced real estate exposures and lower leverage in the real estate funds. 322 ING Group Annual Report 2013

Page 325
... capital in all jurisdictions outside the Netherlands in which NN operates, general account policyholder liabilities are valued at a single discount rate set when the policies are sold. General account fixed income assets are typically held at the same value as is reported on the IFRS balance sheet...

Page 326
... long term liabilities as such bonds are amongst the few tradable fixed income securities generating cash flows for 20 years and longer. The table below sets out the market value of NN's general account assets invested in government bonds by country and maturity. 324 ING Group Annual Report 2013

Page 327
...backed securities. General account market value of non-government fixed income securities (1) Market value of non-government bond securities 2013 by number of years to maturity 0-1 1-2 2-3 3-5 5-10 10-20 20-30 30+ Total 2013 Total 2012 4 Consolidated annual accounts 5 Parent company annual accounts...

Page 328
...source of credit risk for NN Group (as compared to bonds). Other sources of credit risk include the claims on counterparties from over-the-counter derivatives, money market exposures and reinsurance. General account mortgages, reinsurance and loans and advances 2013 2012 Mortgages Reinsurance Other...

Page 329
... impaired. Credit quality: NN mortgage loan portfolio, outstandings Netherlands Life 2013 2012 2013 NN Bank 2012 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Performing mortgage loans Past due mortgage loans (1-90 days) Non-performing mortgage loans (more...

Page 330
... Life. The FX risk at the holding level is managed using FX forward contracts. Risk measurement Economic capital for foreign exchange risk decreased from EUR 377 million at year-end 2012 to EUR 213 million at year-end 2013 primarily due to the weakening of the yen in 2013. MARKET AND CREDIT RISK...

Page 331
... separate account business are managed at the design of the product. Currently NN does not hedge the market risks related to the present value of future fee income derived from this business. 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 332
...resources would be sufficient to meet expected liquidity uses under the scenarios tested. NN does not hold a specific economic capital for liquidity risk in its insurance economic capital model as liquidity is sufficiently available in the insurance business units. 330 ING Group Annual Report 2013

Page 333
... walls and confidential and inside information, as well as a code of conduct for its personnel. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 331

Page 334
... 2013, the life insurance Joint Venture in China and the investment management entities in Taiwan and India are the only remaining discontinued Asian businesses. The economic capital of these businesses is added without taking into account diversification benefits. 332 ING Group Annual Report 2013

Page 335
... high level estimates based on internal risk management reports. A high level estimate has been used to calculate the impact of interest rate stresses on the risk margin which is used to determine the regulatory available and required capital in Netherlands Life. ING Group Annual Report 2013 333

Page 336
...rate (see Market and Credit Spread Risk: General Account Business-Credit spread risk). Also, Netherlands Non-Life, Spain Life, Greece Life and Japan Life are exposed to credit spread risk on their regulatory balance sheet as assets are valued at market value. The available regulatory capital balance...

Page 337
...-up rate). Through the offers, ING Bank issued EUR 2.6 billion of new CRD-IV eligible Tier 2 securities. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 338
... its 2012 funding needs and prefunding its 2013 requirements. ING Bank (including subsidiaries) has EUR 21 billion of debt with an original tenor of more than one year maturing in 2013. POLICIES The activities of Capital Management are executed on the basis of established policies, guidelines...

Page 339
... new pension accounting requirements under IFRS-EU which took place on 1 January 2013. ING Group's Capital base Group 2013 2012 2013 Bank 2012 2013 NN Group 2012 Insurance ING U.S. 2013 2012 2 Report of the Executive Board Shareholders' equity (parent) Core Tier 1 securities Group hybrid capital...

Page 340
... 19, this number is EUR 154 million higher than was presented in the 2012 annual report, resulting in slightly higher capital ratios. Includes revaluation debt securities, revaluation reserve cash flow hedge and the revaluation reserves excluded from Tier 1 as described in ING's Capital base table...

Page 341
... 2013 2012 (4) 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts Shareholder's equity (parent) Hybrids issued by ING Group (1) Hybrids issued by NN Group (2) Required regulatory adjustments IGD capital EU required capital base...

Page 342
Capital management continued Capital base and financial leverage of NN Group 2013 2012 (4) Shareholder's equity (parent) Revaluation reserve debt securities Revaluation reserve crediting to life policyholders Revaluation reserve cash flow hedge Goodwill Minority interests Capital base for financial...

Page 343
... Include legacy units and holding NN Group 2012 excluding US Insurance business on a basis comparable to 2013 (1) 9.6 -0.8 2.4 4.0 -3.8 11.4 4 Consolidated annual accounts The change in model and methodology refers to the change in accounting policy for employee benefits as disclosed in the...

Page 344
Capital management continued ING GROUP The debt/equity ratio of ING Group as at 31 December 2013 was 8.4% (2012: 11.2%). ING Group reports to the Dutch Central Bank as required under the Dutch implementation of the financial conglomerates directive (FICO). The directive mainly covers risk ...

Page 345
... the rating agency if, in the rating agency's judgment, circumstances so warrant. ING accepts no responsibility for the accuracy or reliability of the ratings. 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 346
Capital management continued AUTHORISATION OF ANNUAL ACCOUNTS Amsterdam, 17 March 2014 THE SUPERVISORY BOARD J. (Jeroen) van der Veer, chairman P.A.F.W....THE EXECUTIVE BOARD R.A.J.G. (Ralph) Hamers, CEO and chairman P.G. (Patrick) Flynn, CFO W.F. (Wilfred) Nagel, CRO 344 ING Group Annual Report 2013

Page 347
Parent company balance sheet of ING Groep N.V. as at 31 December before appropriation of result 1 Who we are amounts in millions of euros 2013 2012 Assets Investments in group companies 1 Other assets 2 Total assets Equity 3 Share capital Share premium Non-voting equity securities Legal reserves...

Page 348
Parent company proï¬t and loss account of ING Groep N.V. for the years ended 31 December amounts in millions of euros 2013 2012 Result of group companies after taxation Other results after taxation Net result 3,252 -20 3,232 4,365 -204 4,161 346 ING Group Annual Report 2013

Page 349
... 5,020 3 Corporate governance 4,356 Transfer to share of associates reserve Employee stock option and share plans Repayment of non-voting equity securities Repurchase premium Purchases/sales of treasury shares Balance as at 31 December 2012 (restated) Remeasurement of the net defined benefit asset...

Page 350
... results stated in connection with the consolidated balance sheet and profit and loss account are also applicable to the parent company balance sheet and profit and loss account with the exception of Investments in group companies and investments in associates which are recognised at net asset value...

Page 351
... parent company annual accounts of ING Groep N.V. amounts in millions of euros, unless stated otherwise 1 Who we are 1 INVESTMENTS IN GROUP COMPANIES Investments in group companies 2013 Interest held (%) Balance sheet value Interest held (%) 2012 Balance sheet value 2 Report of the Executive Board...

Page 352
... Changes in treasury shares Repurchase premium Transfer to share of associates reserve Transfer to retained earnings Employee stock option and share plans Impact of ING U.S. Changes in the composition of the group Closing balance Changes in other reserves and unappropriated result 2012 24,549 629...

Page 353
... with respect to dividend and repayment of capital. Change in treasury shares Amount 2013 2012 2013 Number 2012 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Opening balance Purchased/sold Share-based payments Other Closing balance 410 14 -100 -292 32 665...

Page 354
... by type 2013 2012 Debenture loans Amounts owed to group companies Other amounts owed and accrued liabilities Derivatives from group companies 5,429 824 335 291 6,879 6,837 2,250 1,001 122 10,210 Debenture loans Balance sheet value Interest rate Year of issue Due date 2013 2012 Variable...

Page 355
... BOARD R.A.J.G. (Ralph) Hamers, CEO and chairman P.G. (Patrick) Flynn, CFO W.F. (Wilfred) Nagel, CRO 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 356
... annual accounts and the parent company annual accounts. The consolidated annual accounts comprise the consolidated balance sheet as at 31 December 2013, the profit and loss account, statement of comprehensive income, statement of cash flows and statement of changes in equity for the year...

Page 357
...the trade unions, the ING Pension Fund, the Central Works Council and the Association of Retired ING Employees (VSI) to transfer all future funding and indexation obligations under ING's current closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. The agreement makes the ING...

Page 358
... of our insurance, banking and asset management business. Factors such as interest rates, securities prices, credit spreads, liquidity spreads, exchange rates, consumer spending, changes in client behaviour, business investment, real estate values and private equity valuations, government spending...

Page 359
... to manage our business and may adversely affect our assets under management ('AUM'), results of 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 357

Page 360
... industry practices, modelling of natural catastrophes is performed and risk mitigation measures are taken. In case claims occur, reserves are established based on estimates using actuarial projection techniques. The process of estimating is based on information available at the time the reserves...

Page 361
... implementing technical standards proposed by EIOPA), and Level 3 guidance will be issued by EIOPA. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 359

Page 362
... regulatory powers will be transferred from national authorities of the participating Member States to the ECB and that the ECB will assume direct responsibility for a significant part of the prudential supervision of ING Bank and its holding company, ING Group. On 23 October 2013, the ECB announced...

Page 363
... under Dodd-Frank and have a material effect on our results of operations or financial condition. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 361

Page 364
... to expropriation of assets of or shares in the capital of failing financial institutions. For example, on 1 February 2013, the Dutch State nationalised the SNS Reaal bank and insurance group ('SNS Reaal') by expropriating shares, Core Tier 1 securities and other subordinated debts issued by SNS...

Page 365
... 2012 and is updated at least annually. Furthermore during 2013, ING Bank submitted information on the basis of which the Dutch Resolution Authorities will be able to develop a Resolution Plan. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company...

Page 366
... over the slow economic recovery, the European sovereign debt crisis, the ability of certain countries to remain in the Eurozone, unemployment, the availability and cost of credit, credit spreads, the recent shutdown of the U.S. government and its plan to phase out 364 ING Group Annual Report 2013

Page 367
...nature are key assets on the balance sheets of financial institutions and are widely used as collateral by financial institutions to meet their day-to-day cash flows in the short-term debt market. The impact of any further downgrades to the sovereign credit rating of the U.S. government or a default...

Page 368
... sovereign finances persisted during the course of 2013. Market concerns over the direct and indirect exposure of European banks and insurers to the EU sovereign debt further resulted in a widening of credit spreads and increased costs of funding for some European financial institutions. In December...

Page 369
... assets would not materially and adversely affect our business, results of operations or financial condition. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report...

Page 370
... on our investment portfolios; â€¢ higher costs for certain derivative instruments that may be used to hedge certain of our product risks; and/or â€¢ lower profitability, since we may not be able to fully track the decline in interest rates in our savings rate. 368 ING Group Annual Report 2013

Page 371
..., and, consequently, - actual claims payments significantly exceeding associated insurance reserves, 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 369

Page 372
.... ING Group's ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing...

Page 373
... different assumptions about these factors may have an adverse impact on our results of operations'. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 371

Page 374
...models. ING Group companies operate various defined benefit retirement plans covering a significant number of our employees. The liability recognised in our consolidated balance sheet in respect of our defined benefit plans is the present value of the defined benefit obligations at the balance sheet...

Page 375
... ING engages in a product approval process in connection with the development of such products, including 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 376
... breaks by third parties), inadequate or failed internal control processes and systems, regulatory breaches, human errors, employee misconduct, including fraud, or from external events that interrupt normal business operations. We depend on the secure processing, 374 ING Group Annual Report 2013

Page 377
...retail banking business in the Netherlands. The EC's approval of the Initial Restructuring Plan was issued on 18 November 2009. On 28 January 2010, ING lodged an appeal with the General Court of the European Union 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts...

Page 378
...-guarantee that ING extended to the Dutch state in connection with the divestment of ING Direct USA in 2012. The restrictions imposed by the Restructuring Plan could adversely affect our ability to maintain or grow market share in key markets as well as our results of operations. See 'Risks Related...

Page 379
..., business and growth opportunities and results of operations for our remaining core banking businesses. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013...

Page 380
...continued implementation of restructuring and cost saving initiatives may have a material adverse effect on our business, financial condition, results of operations and cash flows. Whenever the overall return on the (remaining) Core Tier 1 Securities issued to the Dutch State is expected to be lower...

Page 381
... shareholding should they not be permitted to participate in future equity offerings with subscription rights. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report...

Page 382
...recommendations Type Number Brief description Pages General 1 2 3 4 Risk governance, risk management and business model Capital adequacy and risk-weighted assets 5 6 7 8 9 10 11 12 13 14 15 16 Liquidity & Funding 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Market risk Credit risk Other risk...

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.... For more information, please refer to the chapter 'Ongoing changes in the regulatory environment'. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 381

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... - Corporate - Residential mortgages - Other retail Total portfolios subject to AIRB approach Securitisation exposures Equity portfolios in the banking book under the simple risk weight approach Other Non-Credit Obligation Assets Total Credit Risk Market risk Standardised approach Internal models...

Page 385
... 33,354 2 Report of the Executive Board 6,774 -1,506 -146 5,122 6,850 3 Corporate governance -75 6,774 7,142 1,212 -91 8,263 46,496 8,502 -1,384 24 7,142 47,270 4 Consolidated annual accounts Unless stated otherwise, the tables in Pillar 3 are focused on credit risk and market risk only and...

Page 386
... securities Revaluation reserve real estate Non-hedged subordinated loans Deduct participation Bank of Beijing Tier 2 deductions (1) Minority interests, counting as Tier 2 capital Available tier 3 funds BIS capital Risk-weighted assets Core Tier 1 ratio Tier 1 ratio BIS ratio Required capital based...

Page 387
...2013 2012 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts Opening amount Book size (1) Divestments Book quality (2) De-risking Model updates (3) Methodology and policy (4) Foreign exchange movements Other Total movement Closing...

Page 388
...'s Real Estate Finance (US) assets to Wells Fargo, which is in line with ING's strategic objective of ensuring efficient use of capital across portfolios. â€¢ There were several model updates through the year with a focus on mainly the Corporates portfolio and in particular the Commercial Property...

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.... Model approaches per exposure class Sovereigns READ RWA READ Institutions RWA READ Corporate RWA READ Retail RWA READ Total 2013 RWA READ Total 2012 RWA 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts SA approach On-balance Off-balance Securities Financing...

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... from Corporates to Sovereigns, resulting in an increase in READ, in mainly the Term loan portfolio in the Netherlands. In addition, ING Bank has intensified its payments and cash management offering which often requires additional revolving credit facilities. Since these facilities are often linked...

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... Executive Board Institutions 3 Corporate governance Institutions Product Type Bond Investments Derivatives Revolving Money Market Term Loans Other PD Bands 50% 4 Consolidated annual accounts Institutions 5 Parent company annual...

Page 392
... of the REF portfolio, the sale of ING's Real Estate Finance (US) assets to Wells Fargo and the further decline of the ING Lease run-off portfolio have contributed to the decline and have led to an improvement of the risk profile of the Corporates portfolio. 390 ING Group Annual Report 2013

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... 'Retail'. Retail credit risk disclosure in READ 2013 2012 Delta % Retail Total per rating Performing Impaired/Non-performing Customer Segment Private Persons Small Mid-sized Enterprises Private Banking Other Geography/business units Africa America Asia Australia Other Europe Europe Netherlands...

Page 394
... average Loan-to-Value (LTV) ratio of the ING Bank Residential Mortgage portfolio per country. All LT V figures are based on market values. In most portfolio's, ING uses house price development to index these market values. In several markets, customers provide additional collaterals or (government...

Page 395
... and (EAD) after conversion factors 2013 Exposure before risk mitigation Exposure after conversion factors * Exposure before risk mitigation 2012 Exposure after conversion factors * 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Risk Weight Buckets 0% 10% 20...

Page 396
.... This effect can cause RWA to increase or decrease together with risk rating migration without a significant change in the size of the underlying financial assets, in terms of financial accounting. As such, rating migrations are closely monitored within ING Bank. 394 ING Group Annual Report 2013

Page 397
...parameters since last reporting date in the following paragraph. Model approaches per exposure class for the AIRB portfolio Sovereigns Institutions Corporate Residential mortgages Other retail Total 2013 Total 2012 5 Parent company annual accounts 6 Other information Average PD Average LGD EAD RWA...

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... Corporate Retail RWA Density 2013 2012 EBA Study Group 2012 (1) 7.6% 3.2% 7.0% 19.1% 16.3% 20.0% 49.0% 38.5% 50.0% 21.6% 18.3% 22.0% Report on the pro-cyclicality of capital requirements under the Internal Ratings Based Approach, EBA - 17 December 2013. 396 ING Group Annual Report 2013

Page 399
... models are developed on an obligor basis. Average estimated PD under the Advanced AIRB approach versus the actual default rate per exposure class Sovereigns Institutions Corporate Residential mortgages Other retail Total 2013 2 Report of the Executive Board 3 Corporate governance Average PD 2012...

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... in the Risk Management paragraph. Reconciliation of non-performing loans disclosures (1,2) Commercial Banking Retail Banking Benelux Retail Banking International Total ING Bank Impaired loan book movements Impaired loans at 1 January 2013 Classified as impaired during the year (1) Transferred to...

Page 401
... of past due loans does not exist for these types of obligors and hence the reason why the business exposure classes are not included. Past Due Loans by economic sector Residential mortgages Other retail Total 2013 Total 2012 5 Parent company annual accounts Private Individuals Other (1) Total...

Page 402
... credit risk outstandings. Credit Risk outstandings include amounts associated with both on- and off- balance sheet products, but exclude amounts related to unused limits. Past due loans by geographic area (based on outstandings) Residential mortgages Other retail Total 2013 Total 2012 Netherlands...

Page 403
... ING Bank on the unused portion of these facilities. Pre-Settlement, Money Market and Investment limits are generally not committed. Undrawn commitments Sovereigns Institutions Corporate Residential mortgages Other retail Total 2013 Total 3 Corporate governance 4 Consolidated annual accounts 2012...

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...AIRB approach. Derivatives by product type in READ Sovereigns Institutions Corporate Residential mortgages Other retail Total 2013 Total 2012 Interest Rate Derivatives Foreign Exchange Derivatives Equity Derivatives Exchange Traded Products Credit Derivatives Commodity Derivatives Derivatives Total...

Page 405
Additional Pillar 3 information continued 1 Who we are Securities financing by product type in READ Sovereigns Institutions Corporate Residential mortgages Other retail Total 2013 Total 2012 Bond Financing Given Equity Financing Given Bond Financing Taken Equity Financing Taken Total 1,460 167 ...

Page 406
... insurers under the Nationale Hypotheek Garantie (NHG) in the Netherlands. The NHG guarantees the repayment of a loan in case of a forced property sale. Exposures READ secured by guarantees received Sovereigns Institutions Corporate Residential mortgages Other retail Total 2013 Total 2012...

Page 407
...each investment proposal is analysed by Credit Risk Management and decided upon by authorised mandate holders pursuant to the signatory approval process in place at ING Bank. In 2013 ING Direct did not purchase any new securitisations. 4 Consolidated annual accounts 5 Parent company annual accounts...

Page 408
... Basel III liquidity framework. In line with ING's internal rating policy, securitisation exposures are rated using the worst external rating (Fitch, Moody's and S&P). ING keeps close track of the securitisation investment positions via monthly monitoring reports. 406 ING Group Annual Report 2013

Page 409
... also hedged the first loss tranches in 2009 (Flipper transaction). The mezzanine tranches are still transferred to third parties. 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 407

Page 410
... in the money market for secured borrowings. ING Bank has created a number of these securitisations with a 31 December 2013 position of approximately EUR 76 billion of AAA rated notes and unrated subordinated notes. The underlying exposures are residential mortgages in the Netherlands, Germany...

Page 411
...+100bp Credit Spread +40bp Equity Prices -10% Real Estate -10% Foreign Exchange +10% 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts Capital Elements Reserve Property revaluation reserve Cash flow hedge reserve Available-for-sale reserve Debt securities Equity...

Page 412
.... Below presented table defines asset encumbrance as the total pool of assets used for covered bond programs, external securitisations and collateral posted for derivatives. Encumbered assets ING Bank (1) 2013 2012 Collateral type Residential mortgages Residential mortgages Cash/deposits Total...

Page 413
... be ready in the second half of 2014, banks are expected to behave according to the CRD IV already. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 411

Page 414
.... Credit risks arise in ING's lending, pre-settlement and investment activities, as well as in its trading activities. Credit risk management is supported by dedicated credit risk information systems and internal rating methodologies for debtors and counterparties. 412 ING Group Annual Report 2013

Page 415
...associated with ownership of an asset to the lessee. Title may or may not eventually be transferred. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 413

Page 416
... external debt management plans, debt consolidations, the deferral of foreclosures and other modifications. FOREIGN EXCHANGE RATE RISK Probability of loss occurring from an adverse movement in foreign exchange rates. FORWARD CONTRACTS Commitments to exchange currencies or to buy or sell other...

Page 417
..., ING Group may lose the deposit placed. Money market risk is therefore measured simply as the notional value of the deposit, excluding any accrued and unpaid interest or the effect of any impairment. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent...

Page 418
... not traded on a stock exchange but directly between market participants. PERFORMING LOANS Loans for which clients currently meet and are expected to meet their financial obligations in full and on time. PLAN ASSETS Comprise assets held by a long-term employee benefit fund and qualifying insurance...

Page 419
... out the amounts of regulatory capital an insurance undertaking must hold against unforeseen events. 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information ING Group Annual Report 2013 417

Page 420
...behalf of clients or to hedge other positions in the trading portfolio. TRANSFER RISK Probability of loss due to currency conversion (exchange) restrictions imposed by a foreign government that make it impossible to move money out of the country. TREASURY BILLS Generally short-term debt certificates...

Page 421
... Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information WRITTEN AND PRODUCED BY ING Groep N.V. DESIGNED BY Addison Corporate Marketing, London PRINTED BY Drukkerij Tesink, Zutphen ING Group Annual Report 2013...

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... N.V. Bijlmerplein 888 1102 MG Amsterdam P.O. Box 1800, 1000 BV Amsterdam The Netherlands Telephone: +31 20 5639111 Internet: www.ing.com Commercial Register of Amsterdam, no. 33231073 Â© CO neutral We print Printed with Bio ink & varnish Â© Drukkerij Tesink CO neutrally Â© Drukkerij Tesink...

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